The parties' arguments
- On September 10, 2025, Chen and the company filed an amended counterclaim, in which Chen is represented by Adv. Gafni while the company is represented by Adv. Abukart. According to Epstein, the separate representation of the company and Chen is a "fictitious move" on the face of it, in response to a complaint submitted to the Ethics Committee of the Israel Bar Association regarding the provision of legal services and opposing representation of the company and the defendant by one representative – Adv. Gafni. At the basis of Epstein's hesitation is the claim that Adv. Abukart is a "common partner" in the firm of the defendants' attorney. According to Epstein, the separation of representation constitutes an abuse of legal proceedings and gives Chen an improper procedural advantage. It was also argued that the very appointment of an attorney to the company by Chen, in a decision made by him as a sole director, is tainted by a built-in conflict of interest that was done without authority. This is because the defendant has a personal interest in the proceeding, and hence special approval was required, and according to the law there was room to approve the engagement at the general meeting. It was argued that Chen's conduct constitutes discrimination and puts the company at risk.
- In a hearing held on August 25, 2025, Chen responded to the request and argued that the allegations raised by Epstein relate to the rules of ethics and that these issues should not be discussed in court. It was claimed that Adv. Abukart was not a partner in the firm, even though his name was mentioned in the letterhead. As to the appointment itself, it was argued that the authority to do so is given to the director at his discretion.
Decision
- This request is also liable to be rejected.
- Epstein's request consists of two heads – the claim of improper representation that he claims stems from a fictitious separation of representation, and the claim that the mere appointment of an attorney for the company was a decision tainted by a conflict of interest and therefore null and void.
- The first argument in which Epstein complains that the same law firm (according to him) represents both Chen and the company, is a claim that relates to the rules of conduct of lawyers, as Epstein himself claims in the application.
- In Civil Appeal 9930/17 Al-Madameen, in the Tax Appeal v. Hanna [Nevo] (March 28, 2018) (hereinafter: the Al-Madameen case), the Supreme Court discussed "the interface between the ethics duties of lawyers and the courts in which they represent" (ibid., at para. 12). In the same matter, it was held that although the court has jurisdiction in principle to grant orders or remedies for a violation of the rules of ethics of lawyers, by virtue of its general authority enshrined in section 75 of the Courts Law [Consolidated Version], 5744-1984, the natural arena for clarifying questions relating to professional ethics is the institutions of the Bar Association. Therefore, the rule established in the Al-Madameen case is that questions relating to what is permitted and forbidden will be decided by the Bureau's ethics institutions, and only in exceptional cases will the court be required to decide for itself on ethical issues that arise before it (ibid., at paragraphs 14-15). The decision in the Al-Madmeen case, which was adopted in another Supreme Court ruling, stated that "the touchstone according to which it will be determined whether this is one of those exceptional cases that justify a court ruling on issues in the field of professional ethics lies in answering the question of whether a violation of the rules of ethics is liable to harm the legitimate interests of the party who raised the claim in this matter. This is in contrast to the fear of harm to the dignity of the legal profession as a result of a violation of an ethical rule" (Civil Appeals Authority 3036/19 Rotem Amfert Negev in Tax Appeal v. Tal [Nevo] (February 25, 2020)).
For the sake of completeness, it should be noted that in the Al-Madameen case, it was held that in those exceptional situations in which a court was convinced that it must clarify the ethical issue in order to maintain the fairness of the proceeding, "logic often requires that the parties first be referred to the Bar Association, for a preliminary opinion or the like," "because the way to clarify ethical questions is with the Bar Association's institutions..." (The case of Al Madameen, at paragraph 21). At the same time, it was clarified that the court is authorized to decide a dispute even without requiring a preliminary opinion from the Bar Association, when the nature and scope of the arguments allow it, and their clarification is expected to be simple from a factual and legal point of view – and in this matter the court has discretion, both in the course of action and in deciding on the merits of the claim.
- The circumstances of the case before us necessitate the conclusion that one should take the right path – clarifying the ethical questions in the institutions of the Bar Association. Even before the request was filed, Epstein filed a complaint with the Israel Bar Association's Ethics Committee and his application is under investigation (Appendix 2 to the application), and therefore it is appropriate to wait for the results of the investigation. Moreover, a decision on Epstein's claim requires factual clarification, including hearing the position of the lawyers regarding the relationship related to the operation of their firm and the cooperation between them, and therefore it is appropriate that this be done in the institutions of the Bar and not in court.
- Epstein did not refer to the ethical rule that was allegedly violated, according to his claim. A review of the Rules of the Bar Association (Professional Ethics), 5746-1986, may show that the relevant rule according to Epstein's claim is Rule 14 dealing with a conflict of interest, and possibly even Rule 16 of the Rules of Ethics, although on the face of it, and without setting rivets, this is not a clear case of "treatment against the client". In any event, Epstein's claims that the same law firm (and I do not take any position on the matter) is acting in a conflict of interest and represents both Chen and the company, is an issue that involves the possibility of infringement of Epstein's procedural rights. Therefore, when the decision of the Bar Association's institutions is made, Epstein is entitled to raise the issue again before the court as necessary.
- The other argument in the context of the company's representation relates to the decision made by Chen to hire an attorney to represent the company. Epstein focuses his arguments on the decision regarding the appointment of an attorney to represent the company in a counterclaim in which the plaintiff is the company. I turned around and did not find an explanation as to why Epstein does not focus on the substantive decision – the very decision to file a lawsuit, and focuses on the secondary layer of the decision – the identity of the lawyer who will represent the company.
In a hearing held on July 16, 2025, the parties reached an agreement that the counterclaim, which was initially filed only by Chen, would be amended in such a way that the company would be added as an additional plaintiff, while the lawsuit against Epstein filed in Italy would be deleted and would continue to be conducted against Brands only. In light of a dispute regarding the meaning of the consent, Epstein's attorney stated as follows: "I will not deny the very conduct of the lawsuit in Israel, I will not ask for it to be removed, but substantive claims such as the defendant's use of the company in order to object to my client, whether there was room or not, are reserved to me." Against the background of this statement, it appears that the focus on the decision regarding the appointment of an attorney to represent the company is intended to circumvent the agreement regarding the filing of the amended claim, by arguing on the secondary level, on the question of who represented the company. In fact, accepting Epstein's claim leads to the conclusion that the company will forever be left without representation. This is unacceptable.
- And back to Epstein's claim that the decision to appoint an attorney to represent the company by Chen has no validity. In order to understand the argument, we note that section 270 of the Companies Law lists a list of transactions that require approval, provided that the basic condition that they are in the best interest of the company is met. One of the transactions listed in Collective Dispute 1 is "a transaction of the company with an officer of the company, as well as a transaction of a company with another person in which an officer of the company has a personal interest" (and the relevant matter is the clause – because this is not a transaction with an officer). Section 278(a) of the Law states that a person who has a personal interest in approving a transaction, including a transaction under section 270(1) of the Law that is brought for approval by the Board of Directors, will not participate in the vote. Moreover, section 278(c) states that in the event that most of the directors have a personal interest in approving a transaction, the transaction requires double approval – from both the board of directors and the general meeting. Section 280(a) of the Law states that a transaction that was not duly approved will have no validity, but we will note here that this result of nullity does not apply in relation to all the transactions claiming approval.
According to Epstein, the appointment of an attorney to represent the company by Chen, as a sole director, for the purpose of filing a lawsuit against Epstein, with whom he has a personal rivalry, is tainted by a built-in conflict of interest. According to Epstein, Chen has a clear "personal interest" in the engagement with an attorney, which requires special approval, and therefore he is prevented from participating in the discussion and approving the transaction by the board of directors. In this state of affairs, Epstein continues, there was room to bring the deal to the approval of the general assembly, but Chen bypassed this approval mechanism, knowing that the appointment would not be approved in light of the equality in the general meeting. Hence, the "transaction", i.e., the appointment of an attorney, has no validity.
- I reject the conclusion that Epstein seeks to extract from the legal situation, because he bases his arguments on the erroneous assumption that the appointment of an attorney to represent the company is a transaction, whereas this is not the case.
- We will preface by noting that sections 270, 278 and 280, and in general the fifth chapter of the sixth part of the Companies Law, deal with a "transaction". The Companies Law distinguishes between a "transaction" and an "action." In Section 1 of the Companies Law, a "transaction" is defined as "a contract or engagement as well as a unilateral decision of a company regarding the granting of a right or other benefit", while an action is "a legal action, whether by act or omission". It therefore follows that the term "action" residually includes any legal action that does not amount to a transaction (Zohar Goshen and Assaf Eckstein Corporate Law 343 (2023) (hereinafter: Zohar and Eckstein). I do not believe that a decision regarding the appointment of an attorney to represent the company is intended to grant a right or benefit to the company. In view of the company's best interests, the engagement with an attorney to represent it in a legal proceeding is intended to stand up for its rights and not detract from its resources. Even if it can be argued that the counterclaim may affect Chen's rights, it is an indirect effect that does not fall within the scope of a "transaction", because "not every unilateral decision that can indirectly affect the granting of a right is a 'transaction' as defined in the section, but only a unilateral decision by virtue of which the company decides to grant a right directly" (Civil Case (Tel Aviv Economic) 55366-12-11 Lipshes v. Arad Investments and Industrial Development Ltd., Paragraphs 28 [Nevo] (August 26, 2012). Moreover, paradoxically, the legal proceeding on behalf of the company against Epstein may even increase Epstein's rights in the company. Therefore, the engagement with the attorney is not a transaction, but rather an "action" to which the approval mechanisms claimed by Epstein do not apply.
- Epstein argued for the applicability of section 270(1) of the Companies Law, based on the erroneous premise that this was a transaction. The motion does not argue about the significance of the action in light of section 254(a) of the Companies Law, which regulates the officer's fiduciary duty towards the company and determines, inter alia, that he is obligated to refrain from "any action that has a conflict of interest between the performance of his position in the company and the performance of another function of his or her personal interests". Therefore, I will not elaborate on the issue and will briefly note that engaging with an attorney for the purpose of representing the company's interests in a legal proceeding does not place Chen in a situation of conflict of interest between him and the company, on the contrary – it is intended to serve the company's best interests.
- Therefore, I reject Epstein's arguments regarding the appointment of Adv. Abukart to represent the company in the counterclaim.
The Result
- The result, therefore, is that subject to what is stated in paragraph 26 of the decision, all applications must be rejected.
- When I came to consider the question of expenses, I considered, inter alia, the result of the requests, what was stated in my decision, and the scope of the parties' investment in clarifying the requests; I also gave my opinion to Epstein's conduct, as I commented on several places in the decision. Accordingly, I decide to obligate Epstein to pay Chen expenses in the total amount of NIS 7,500.
The Secretariat will send the decision to the parties.